The Afternoon Audit
Friday | 5.22.2020

Stocks Rise Slightly Higher

Catch Up Quick

• The University of California school system drops the ACT & SAT requirement for college applications

• Barely five months into the year, U.S. investment-grade companies already have issued more than $1 trillion in debt

• Facebook CEO Mark Zuckerberg said the company will move "in a measured way" toward a long-term remote workforce

• China won't set an annual GDP target for the first time in decades because of the "great uncertainty regarding the pandemic and the world economic and trade environment"

• With cases in Brazil jumping by nearly 500%, South America is quickly becoming a coronavirus epicenter

My Friday Opinions

• The decline of the legacy meat industry, due to climate concerns and dietary trends, will be accelerated by the pandemic, but plant based meat won't be the successor— lab grown meat is the future of the realm

• The pandemic will speed up automation in supply chains— previously, companies considered machines because they can work 24/7 for free (minus depreciation)— however now a further enticement is that they cannot get sick

• Between, shorter menus, pricier food, less service, servers wearing masks and surgical gloves, among others, the future of dining-out looks highly unattractive

• China’s plans to impose new national security legislation on Hong Kong will ignite fresh pro-democracy protests and tension

Why Universities Will Survive

Upcoming Challenges

• Recently, I discussed upcoming hardships colleges across the globe are bound to face

• This Fall (to reiterate) they must convince students that online classes are worth the same as in-person classes, only to re-convince them that in-person classes are the best option once the pandemic subsides (otherwise students may stick to the online format)

• This is equivalent to a company selling it's competitors product for a brief period of time and then going back to selling it's own product, while retaining the same customers despite different products offerings

• While this is a legitimate concern, I opine it doesn't pose a fatal threat to colleges for two precise reasons: 1) experience 2) prestige

Experience

• A big part of the price tag of universities is the experience

• Between sporting events, greek life, on-campus involvement, parties, being a proud part of an institution, among others, are all things online classes cannot offer no matter what

• People are willing to pay for experience

Prestige

• Assuming online classes give students the same skills, knowledge and functionality to excel in their respective fields (which is another question in itself), humans inherently value the intangible element of prestige, whether consciously or subconsciously

• A Honda and a Ferrari in most cases serve the same function, same with a belt from T.J. Maxx and one from Gucci— so why the discrepancy in price tags?

• Similar to how we value brands differently, employers do as well

• I began my career in investment banking, and I could've succeeded in the interviews by learning 100% of the material online, but I wouldn't even have gotten a shot in the first place without a four-year degree in progress

The Bottom Line

• Online classes alone lack these two elements (for now) but they still pose a solid threat to traditional secondary education

• Perhaps universities will adopt sustainable supplemental online options, diversify revenue away from tuition, or increase endowment liquidity

• While bound for change, don't be so quick to associate the more attractive cost to payout ratio of online classes with the outright end of university style education